Research On The Effects Of Financial Restraint On Investment Efficiency

Since Chinese reform and opening up policy began,as the fastest engine to start the economy and an important policy tool for macroeconomic regulation,investment has played a leading role in maintaining China's rapid economic growth.However,as the economy has entered the 'new normal',structural problems such as overcapacity have become increasingly prominent.The continuous decline in investment efficiency,which is mainly manifested by excessive investment and the decline in the efficiency of capital allocation,has become an important obstacle for China's sustainable economic growth.The traditional economic growth model of exchanging high investment for rapid growth cannot be sustained.The shift from focusing on investment scale to improving investment quality and efficiency,improving investment efficiency and cultivating and strengthening new drivers of economic growth will become an important focus of China's economic development in the next stage.The key to effectively enhancing investment efficiency is to identify the critical causes.In recent years,overcapacity industries have experienced a decline in profitability and high leverage,accompanied by non-performing loans and their high growth rate.The direct cause of excessive financing and investing behavior is relatively low external financing costs.The theoretical community generally blames it for the irrationality of government intervention.Excessive or unreasonable government intervention will distort the price of capital,resulting in a lack of efficiency in capital allocation,making it impossible for financial markets to positively regulate the real economy through price mechanisms,thereby greatly increasing the probability of inefficient investment.Therefore,the financial system or financial policy has become a key breakthrough in research and improvement of investment efficiency.In the mid-1990s,the three economists,Hellman,Murdock and Stiglitz proposed a transitional policy choice theory for financial deepening in developing countries-financial restraint theory.They structured the theory frame basing on the financial development theory and a full understanding of the rationality and limitations of financial restraint and financial liberalization policies.The theory holds that the government can create "rent opportunities" for commercial banks and production sectors by appropriately controlling the deposit and loan interest rates and restricting banking competition,so as to encourage commercial banks to absorb savings and expand the scale of loans and increase private capital accumulation.Ultimately,financial deepening and economic growth will be achieved.The government's "creation" rather than "capture" of private sector rent is the most essential difference between financial restraint and financial repression.And the former of the two policies plays an important role in helping the production sector accumulate capital and promote the conversion of savings to investment.However,any non-market-oriented policy intervention is a "double-edged sword" and financial restraint is no exception.Since the deposit and loan interest rate is lower than the actual equilibrium interest rate and the spread is relatively stable,commercial banks are able to expand the scale of loans in order to chase profits and also help enterprises to obtain low-cost loans for long-term investment.High investment rate but lack of sufficient consumer demand as support will lead to excessive capital accumulation and imbalance of aggregate demand structure.On the other hand,stable deposit-loan spread inhibits the enthusiasm of commercial banks for credit technology innovation.Commercial banks have weaker risk pricing capabilities,and therefore prefer to use passive credit technologies such as asset mortgages with lower technology content and lower input costs.Credit resources are more inclined to traditional industries and large state-owned enterprises with lower information costs,while high-tech industries and small and medium-sized private enterprises are faced with difficulties in sufficient financing and investment opportunities.Based on the above background and mechanism,this paper argues that under the financial restraint policy,the government's distortion of resource allocation through the "rent incentive" mechanism is a long-term and fundamental institutional factor that exacerbates excessive investment and capital mismatch in the enterprise sector and ultimately leads to loss of investment efficiency.Based on the Chinese industrial sector and the relevant content of neoclassical investment theory,information economics and institutional economics,this paper definitely defines and demonstrates that the main feature of current China's financial policy is financial restraint rather than financial repression.Then the mechanism of financial restraint policy causing the loss of investment efficiency of the enterprise sector is further analyzed.About the mechanism,this paper cuts into the theoretical analysis and empirical test from the perspective of output efficiency(total efficiency),industry capital allocation efficiency(structural efficiency)and micro-enterprise investment behavior.Finally,it puts forward relevant policy recommendations based on the efficiency evaluation of China's financial restraint policy.The theoretical and practical significance of this paper lies in:(1)clarifying the policy characteristics of China's current financial restraint and further developing the financial restraint theory with China's practical experience;(2)proposing and verifying the negative impact of financial restraint on investment efficiency,enriching the connotation of investment theory and helping to find the financial causes of China's current two types of difficult structural problems:overcapacity and capital mismatch at the institutional level;(3)judging the effectiveness of financial restraint policy from the perspective of investment efficiency,which provides a medium-micro theoretical basis and new empirical evidence for understanding the significance of financial system reform to China's economic growth and opens up a space for exploring the exit path of financial restraint and using interest rate marketization as the overall starting point to rationally guide financial resources to support high-quality investment and further promote China's economic transformation,upgrading,and sustainable development.The main work and research contents of this paper is divided into eight parts,which are laid out as follows:Chapter one is the introduction which summarizes the background of the topic,the theoretical and practical significance of the research,introduces the research ideas and research methods,sorts out the logical framework of the full text and points out the possible innovations and contributions of the research.Chapter two is a literature review.Firstly,it starts with the classic literature of financial development theory and combines the relevant research on financial policy choices in developing countries to systematically sort out the views on how financial suppression,financial restraints and financial liberalization affect financial deepening and economic growth;Secondly,it sorts out various research perspectives on investment efficiency and summarizes the factors of investment efficiency and the related theoretical and empirical research on China's investment efficiency and sustainable economic growth.Based on the reference and review of the existing literature,this paper proposes the research direction and main content that this paper will explore in depthChapter three is the theoretical connotation of financial restraint and the analysis of policy rationality.From the theoretical background,the nature of economic rent,the equilibrium of credit market and the welfare effect of policy,the paper analyzes the differences and connections between related concepts,and combines the reality of China to demonstrate that financial restraint is the main feature of China's current financial policy.In addition,in the analysis of policy limitations,the paper discusses the negative effects that financial restraint policies may have on private sector investment and lays a theoretical foundation for the argument that financial restraint policies reduce investment efficiency.Chapter four demonstrates the construction of China's financial restraint index and the preliminary judgment of policy efficiency.Taking 1998-2016 as the sample interval,the principal component analysis method is used to construct the Chinese financial restraint index and the time series analysis with structural mutation is carried out.The study finds that the financial restraint policy and China's economic growth have the inverse U-shaped relationship(promoting first and then suppressing),that is,"Stiglitz effect" and "Mcinnon effect".In response to this phenomenon,the article focuses on the limitations of financial restraint policies and the importance of investment efficiency in economic growth theory for sustainable economic growth,and gives preliminary judgments on the stage of financial restraint policies to reduce economic growth by reducing the investment efficiency of production sectors.Chapter five demonstrates the theoretical and empirical analysis of the impact of financial restraint policies on the total investment efficiency.With the simplified theoretical model and the general equilibrium analysis framework,the paper sorts out the theoretical logic of interest rate regulation and savings mobilization under the financial restraint policy,the superposition of capital over-accumulation and the imbalance of aggregate demand structure.In the empirical research,the capacity utilization rate is taken as the proxy variable of the degree of over-investment,and the provincial panel data of the industrial sector is selected to construct a dynamic panel model to investigate the relationship between financial restraint policy,external financing dependency and capacity utilization The study finds that financial restraint policies can significantly exacerbate overcapacity and the higher the dependence on external financing,the stronger the effect of financial restraint policies on overcapacity.Chapter six describes the theoretical and empirical analysis of the impact of financial restraint policies on investment structure efficiency.From the aspects of commercial bank credit rationing and credit technology selection,this part focuses on the mechanism of loan interest rate control and "rent incentive"caused by commercial bank credit discrimination and thus reduces the efficiency of capital allocation.In the empirical research part,the industrial sector data is selected to construct the capital allocation efficiency model.The regression results of the whole sample verify the negative effect of financial restraint policy on the efficiency of capital allocation in the industry.However,the regression results of time-series indicate that the financial restraint policy has improved the efficiency of capital allocation in the industrial sector in the early stage,while the negative impact is mainly reflected in 2008,which may be related to the comparison of advantages of different industries and enterprises in various economic development stages.Chapter seven puts forward a supplementary argument on the mechanism of financial restraint policy from the perspective of micro-enterprise inefficient investment.Taking enterprise non-efficiency investment behavior as the research object,it summarizes the three types of rent incentives to restrain investment efficiency under financial restraint policy,especially for the excessive investment:financing constraint channels,agent channels and capital cost channels.It also empirically tests the financial restraint policy to stimulate the excessive investment demand of enterprises and expands the financing constraint difference of different types of enterprises,which indirectly reflects the effect of financial restraint on the total efficiency and structural efficiency of investment from microscopic perspective.This part strengthens and supplements the conclusions of the fifth and sixth parts of this research.Chapter eight gives conclusions and policy recommendations.Firstly,it reviews the theoretical and empirical research results of this paper,gives an evaluation of the efficiency of China's financial restraint policy based on the perspective of investment efficiency.Then secondly,it proposes relevant measures and suggestions from three aspects:the dynamic adjustment path of future financial restraint policy,the interest rate marketization reform,and the coordination and cooperation of investment demand management and financial supply side reform under the "new normal".Finally,the article combines the revelations gained during the research process to propose issues that deserve further exploration and discussion.